Robo Advisor Halted Trade During Brexit Storm

By Teresa Rivas

Of course, it’s expensive to sell stocks when everyone is panicking, as investors pay higher transaction costs when markets are extremely volatile. That’s why Betterment, a roboadvisor launched in 2010, suspended trading on Friday morning. But investors are questioning the move—and why they weren’t told.

As The Wall Street Journal’s Michael Wursthorn and Anne Tergensen report, Betterment, with $4.8 billion in assets under management, halted trading on Friday from the market open until noon, saying it wanted to protect clients from higher costs as the market scrambled to react to Brexit. However, some individual investors were concerned that they weren’t notified of the decision (although the company did tell institutional clients):

Market participants have long wondered how robo services would handle market declines. Many financial advisers have suggested that without a personal relationship between an individual adviser and the client, the robos’ clients may be more likely to panic and sell when the market falls sharply, hurting their long-term finances.

This isn’t the first time that Betterment has suspended trading around a volatile event, but it was the longest halt.

According to the company’s spokesman, Betterment in general avoids trading a half hour after the market opens and before it closes and its client agreement states that it can limit clients’ access “during periods of market volatility, peak demand, systems upgrades, maintenance and for other reasons.”

Volatility certainly describes Friday. But the news demonstrates that investors may not understand the limitations on their robo-accounts, and may not like them even if they’re designed to help.

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